Strategic Report
Financial Statements
Additional Information
Governance
House prices accelerated during the pandemic as changes to the tax paid on property purchases were announced. UK average house prices increased by 10.9% over the year to February 2022. Rising interest rates are likely to dampen the housing market to some extent in the short-term. Despite the now more muted outlook for the UK economy and the current inflationary environment, there are reasons for cautious optimism. The Covid-19 pandemic has moved into the rear-view mirror. With the vast majority of adults in the UK fully vaccinated, restrictions have been lifted and normality has largely resumed. In a global context the UK remains a safe haven for international capital and posted the strongest GDP growth of all the G7 economies in 2021. UK property market The speed and strength of the property market’s recovery from the pandemic was better than expected. Although the average returns are positive, there is still polarisation between sectors and within subsectors, particularly retail. According to the MSCI UK Quarterly Property Index, commercial property delivered a total return of 19.6% for the year ended March 2022, which compares to 1.1% for the year ending March 2021. The stellar performance was largely attributable to the continued growth in the industrial sector and a recovery in values in the retail warehouse subsector. All Property capital growth was 14.9% in the year to March 2022, significantly better than the -3.2% recorded for the previous year. The income return was 4.2%, slightly lower than the 4.5% recorded for the preceding year. The industrial sector had an extraordinarily strong year. The industrial total return for the year ending March 2022 was 40.7%, with annual capital growth reaching an all time high of 35.9% and an income return of 3.6%. Industrial ERV growth for the period was 11.2%, with a subsector range of 15.8% to 8.2%. Capital growth ranged from 47.7% to 28.2% within subsectors. Equivalent yields for industrial property now stand at 4.1% (March 2021: 5.0%). The office sector continued to face a degree of uncertainty over future demand levels and suffered an additional setback in December 2021 as people were once again advised to work from home in the face of the Omicron wave. The office sector produced a total return of 6.9% for the year to March 2022, comprising 3.2% capital growth and 3.7% income return. All Office annual rental growth was 1.4% ranging from 2.4% to 0.9% within subsectors. Office capital growth ranged from 6.5% to -0.6%. Equivalent yields for office property now stand at 5.5% (March 2021: 5.8%).
The elevated rate of online sales over bricks and mortar retail and oversupply of retail units continues to hamper the retail sector as a whole, albeit some segments have recently seen a return to positive capital growth. The retail sector produced a total return of 14.9% for the year to March 2022. This comprised capital growth of 8.9% and income return of 5.6%. Rental values fell -2.0% over the period, ranging from 0.6% to -7.0%. Retail subsector capital growth ranged from 22.9% to -5.8%. The retail warehouse subsector was the driver of growth, with increased demand from investors pushing down yields. Equivalent yields for all retail property now stand at 5.9% (March 2021: 6.7%). According to Property Data, the total investment volume for the year to March 2022 was £70.5 billion, a 66.5% increase on the year to March 2021. The volume of investment by overseas investors in the year to March 2022 was £33.0 billion, accounting for 46.8% of all transactions. As the disruptive threat of the pandemic recedes, new challenges for the property market are emerging from the macroeconomic and geopolitical environment. In times of uncertainty, UK property is often seen as a safe haven for investment. During periods of increased inflationary pressure property can provide a hedge in the form of an opportunity to grow income through rental growth and in turn generate capital growth. Certain property types are more akin to acting as an inflation hedge. At the current time, assets where demand is strong and supply limited are likely to offer protection through rising rental values, equally leases with fixed or inflation linked leases will also provide support.
Picton Property Income Limited Annual Report 2022
15
Powered by FlippingBook